Rundles Wrap Up: Rental Astronomy

By Jeff Rundles

Published: 2009.11.06 02:57 AM

I realize the Internet is a big place, and once something is posted there it stays forever, and that there have been a few instances of two- or three-year old news stories mysteriously reappearing as "new" news, to much consternation.

But this headline in the news on Oct. 7 this year really baffled me: "Giant Ring Around Saturn Found." What, they tapped into Galileo's Facebook page? Did Copernicus tap into Twitter?

Of course, scientists found a NEW ring around the planet Saturn. A minor editing change would have clarified the story. But then, it is often thus.

Over Labor Day weekend, my wife, son and I got to spend a couple of nights at the new Hyatt Regency at the Convention Center downtown - a wonderful time - and our room had a view dead west. The vista was beautiful toward the mountains, but oddly cluttered up close with construction cranes and new residential buildings, tall ones, going in.

I remember joking with my 11-year-old that we used to say that the Colorado State Bird was the crane because there were so many of them to be seen on the skyline. He got the "joke" and then said something I thought was awfully prescient for a young man of his age: "Who the heck is going to live in those buildings?"

Indeed. I work at the edge of downtown, can see about six construction cranes from my building - most for residential projects - and there are quite a few brand new or soon-to-open housing/apartment developments within a few short blocks. These join an unbelievable number of other residential projects that have sprung up over the last few years, and I can't help noticing that each and every one of them has vacancy signs, rent deals, move-in specials and other incentives for new tenants. It is, quite obviously, a good time to go apartment hunting.

Then I read a news story that - duh! - the U.S. apartment market has hit the highest overall vacancy rate in 23 years, reaching something like 7.8 percent vacancy in the third quarter. The best I could find for Denver and the surrounding area would indicate that things are even worse, with a vacancy rate of more than 9 percent in many areas. Frankly, I would have guessed higher.

But what amazed me about the news stories is that they were really nothing more than press releases prepared by real estate research firms whose clients are the real estate companies in the apartment development business. The reason cited for the high vacancy rates? "The U.S. apartment market has been reeling for more than a year as its main driver, job growth, disappeared in the U.S. recession," according to the Reuters article I read. In other words, apartments are vacant because of high unemployment.

Nonsense. A minor editing change - like assigning the reporter to ask a few more questions - would get to the truth. And this is the truth: The root of the problem in the apartment market, like many other economic sectors severely suffering right now, will not be found in the recession, although that is a convenient excuse for those engaged in that business. It is to be found over the last several years when the apartment industry went on a building binge brought on by cheap and highly accessible development money. To put it more succinctly, they overbuilt.

The seeds of the recession, and the reason so many economic sectors are in trouble, are in the excess they all displayed. When we're riding high, nobody ever questions whether it's too much; it's too much fun. But the banks, the money markets, the institutional lenders, and yes the regulators, should have all been asking - five years ago - what my 11-year-old knew instinctively: "Who's gonna live in all these apartments?"

What's this all got to do with the rings around Saturn? Empirical evidence. Had the powers that be bothered to check the facts, they would have known the apartment developers were astronomically way off on their calculations.